Bunn Freight Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 20Y3.

Line Item Description	Amount
RevenuesAir Division	$ 33,300
RevenuesLand Division	38,500
RevenuesWater Division	73,900
Operating ExpensesAir Division	21,100
Operating ExpensesLand Division	22,900
Operating ExpensesWater Division	44,700
Corporate ExpensesCustomer Support	550,800
Corporate ExpensesLegal	189,000
General Corporate Officers' Salaries	11,200

The company operates two service departments: Customer Support and Legal. The Customer Support Department is the company's point of contact for new service, complaints, and requests for repair. The Legal Department provides legal services for division management. The following amounts were billed back to each division:

Line Item Description	Air	Land	Water
Customer support department service charges	$5,100	$6,100	$9,200
Legal department service charges	1,100	1,800	1,600

Division management does not control the general corporate officers' salaries.

Required:

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1. Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: Air, Land, and Water.

Line Item Description	Air	Land	Water
Accounts receivableCashNet incomeRevenues	$- Select -	$- Select -	$- Select -
Accounts receivableCashNet incomeOperating expenses	- Select -	- Select -	- Select -
CashCustomer Support DepartmentOperating income before service department chargesNet income	$- Select -	$- Select -	$- Select -
Less service department charges:
Accounts payableCashCustomer Support DepartmentRevenues	$- Select -	$- Select -	$- Select -
CashLegal DepartmentManufacturing department chargesRevenues	- Select -	- Select -	- Select -
Total service department charges	$Total service department charges	$Total service department charges	$Total service department charges
Operating income	$Operating income	$Operating income	$Operating income

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2. What is the profit margin percentage of each division? Round to one decimal place.

Division	Profit Margin
Air Division	fill in the blank 1 of 3 %
Land Division	fill in the blank 2 of 3 %
Water Division	fill in the blank 3 of 3 %

Identify the most successful division according to the profit margin percentage.

Air DivisionLand DivisionWater Division

3. Complete the memo to the CEO for a better method for evaluating the performance of the divisions. In your recommendation, identify the major weakness of the present method. You might include the following: